Commission weighs tax hike impacts

Bills lawmakers author and introduce go through a series of steps at the Guam Legislature before becoming a law.
Shawn Raymundo

Sen. Joe S. San Agustin congratulates his counterpart, Junya Kanemitsu, after taking the oath of office to begin his one day term as the senator, at the Guam Legislature on Wednesday, April 18, 2018.(Photo: Rick Cruz/PDN)

A commission charged with exploring ways Guam can delink from the federal tax code on Tuesday focused its attention toward the impacts of the April 1 business privilege tax increase from 4 percent to 5 percent, as well as a new 2 percent general sales tax scheduled to take effect Oct. 1.

Sen. Joe San Agustin, chairman of the Guam Tax Commission, wanted to see if there are suggestions to continue the 5 percent business privilege tax beyond Sept. 30 or whether there are proposed alternatives to the sales tax.

Other members, such as Public Auditor Doris Brooks, suggested waiting for May 20, when taxes are due, to see whether the business privilege tax increase generated additional revenue as expected, and whether adjustments could be made.

Adelup has said the business privilege tax increase could generate $20 million to $25 million.

The Legislature and the governor passed and signed the tax hike and sales tax measure to address a projected $67 million budget shortfall caused by a federal tax reform law.

Brooks said preliminary figures indicate a dramatic drop in withholding tax, but has that's been cushioned by an increase in Section 30 funds, which is federal tax money collected from military people on Guam that's returned to the island. But she said everyone's waiting for the tax filing due date later this month.

Joseph Bradley, chief economist for Bank of Guam, told the commission an economic forum in March raised criticism about the Guam Legislature's tax policy decisions, which he said "create a great deal of instability."

Bradley said panelists in that economic forum want the formulation of tax policy to be longer term, better constructed and much more deliberative.

'Not an ideal situation'

Brook said she agrees that tax policy decisions, ideally, should be made in a more deliberative manner, but she said the recent tax hike was a result of a crisis situation.

"We were not in an ideal situation," Brooks said, adding policymakers had to take action.

Bradley said he agrees and was sharing what the previous economic forum panelists had said. He also said the market will resolve issues surrounding increases and decreases in taxes and prices of goods.

"Your price may go up by 1 percent and stay up by 1 percent, but six months from now, prices would be where they would have been had the tax not gone up by 1 percent because of competition in the market, because the players are the same players," he said, adding some businesses adjust more quickly than others.

H-2B visa denials

The public auditor said the government may have to do more to address the denials of foreign skilled workers under the H-2B visa program because of their "very detrimental" effect on the construction industry.

Brooks said she just came from an audit meeting with the Guam Housing and Urban Renewal Authority, which indicated project delays due to lack of H-2B workers.

Sam Mabini, director of the Guam Department of Labor, said government of Guam efforts have helped lead to the approval of H-2B petitions for military projects, and the Guam Contractors Association's lawsuit, along with GovGuam's continued requests to the federal government, is seeing progress.

She said the U.S. Citizenship and Immigration Service has approved 654 H-2B visas for military projects and denied 64 for petitions related to civilian construction projects, while 555 are still pending with USCIS.

$20M expected from tax amnesty

Rev and Tax Deputy Director Marie Benito said the agency hopes the tax amnesty program, which started May 7, will bring in "at least $20 million."

The program requires a 10 percent down payment on the principal owed when applying for amnesty, which wasn't required in previous programs.

Taxpayers must submit applications within a three-week time frame, from May 7 to May 28. They have until Aug. 6 to pay their taxes. All unpaid civil penalties, except previously assessed fraud penalties, and any unpaid interest, will be waived for eligible taxpayers and eligible taxes, Rev and Tax said.

The Guam Tax Commission is charged with exploring ways Guam can delink from the federal tax code and create its own tax laws. Guam mirrors the federal tax code, but has had the ability since the 1980s to create its own unique tax code and delink.

Several tax commissions, which have since been disbanded, were established over the years to review the feasibility of delinking from the federal code.